Why I use the Five Flag Theory to find more freedom

When people hear that I’m off to live in Vietnam or open a bank account in Hong Kong or start a business in the Indian Ocean nation the Seychelles, the often ask: “Why? Don’t you love America? It’s the best place on earth!”

The answer is that I use the Five Flag theory to find more freedom.

More to the point, I tend to be pragmatic about decision I make in life. I can respect the upbringing I had and where I’m from without worshiping the place or ignoring its flaws. I want to take advantage of the best each place has to offer.

Just like I wouldn’t go to the best steakhouse in town to order macaroni and cheese, I accept the limitations of each country and use modern connectedness to plant flags in a way that benefits me.

If banking or gold storage or the entrepreneurial climate is better somewhere else, I want to avail myself of that.

I’m open to the fact the other places may do things better than here.

When you choose to entrust your entire existence, livelihood, and fortune to one place, things can get ugly fast. One stroke of a pen can wipe out everything you have or make your life very miserable.

The US government has in its history confiscated gold, stolen land, and plenty of other things from its people.

Not to mention that “temporary” income tax or “voluntary” social security tax I’m still waiting on to expire.

While I’ve been traveling the world, visiting dozens and dozens of countries in a few short years, the questions are more specific. People wonder what I’d do if I get sick. Or if a riot broke out. Or if I got mugged and thrown into a dumpster.

I don’t really worry about those things because the world seems to get along fine. Often much better than my country of birth.

When you grow up in one country, you get a form of indoctrination. It seems harmless enough, but eventually you may imagine your home as an island. This is more common in the United States, where the size of the country and limited contact with neighboring countries keeps us somewhat secluded.

For me, the United States is a quintessential tourist destination. It’s fun to visit New York in the summer, or listen to jazz at the Hollywood Bowl. There are some great national parks and beautiful scenery of all sorts.

Yet I view it in the same vein as I do Italy or France – an interesting place I love to visit, have some good food, and bask in the romanticism of it all, but not somewhere I want to tie my anchor to for the next fifty years.

If you’re happy living in the US, by all means do so, but be open to places to diversify in other ways so you’re well prepared.

I don’t hate the United States but it’s important to be honest about each country’s strengths and weaknesses. No one country can be the best at everything. Or anything.

Let’s take a few examples:

Economy. If you’re just getting out of college in the US, you know what I’m talking about. Even better, look at the droves of people leaving Spain (or Ireland fifteen years ago) out of desperation for work. These aren’t third world countries. The US economy is in malaise with high unemployment. It’s conditions like these where asset-stealing, liberty-trampling governments are bred. If you’re an entrepreneur, you know how bad this can be for business. Economies run on margins and even percentage point means something.

Imagine running a business in Zurich or Singapore or on the Isle of Man. These first-world jurisdictions have sub-3% unemployment. In Thailand, the official rate is 0.5%; ditto for Qatar, where you might think they invented the luxury shopping mall. Do you think you’d have more success in one of those places once you knew the culture?

What about developing markets like China or India or Mongolia – all home to plenty of wealthy people – where entrepreneurs have made a mint just opening a donut store and riding the wave of seemingly endless success.

Banking. Ever since they emerged from the financial crisis with only light bruising, Canadian banks have been recognized as the strongest in the world. Five Canadian banks made the list of the world’s top twenty best-capitalized institutions.

Think it doesn’t matter? The FDIC has about one-half percent of insured deposits sitting in its war chest. Why else do you think they need Too Big to Fail? One wrong move in the banking system and the US government would have to pull a Cyprus and tell depositors to pound sand, or fire up the printing presses to run even faster, devaluing the dollar and serving as de facto thievery.

Of the world’s fifty strongest banks, four US retail banks make the cut. Germany, the Netherlands, Switzerland, and more were deemed more safe. Socialist countries like Sweden and France beat out the US, as did the often maligned China, Kuwait, and United Arab Emirates. Every major bank in Australia, Canada, and Singapore outperformed the best US bank.

Economic Freedom. No better place to start a business? Nowhere with more freedom to innovate or move capital? Of the world’s five truly “free” economies, the United States is not present. Hong Kong has been number one for years. Singapore is a close second, followed by the most promising major economies in the western-style developed world, Australia and New Zealand. Switzerland rounded out the top five.

The United States is tenth, behind Chile, egalitarian Denmark, and a little-known Indian Ocean island chain called Mauritius. (I know a guy who has a foreign trust there and it’s becoming a real contender)

Business Freedom. As an entrepreneur, I want to know what I’m up against when I deal with the government. Yet places like Norway, Switzerland, Denmark, Australia, New Zealand, and Australia all outpaced the US in transparency. The land of the free was nineteenth in third grouping down. Overall business freedom is ranked at fifteenth, below the usual suspects and even Belgium.

Limited Government. If you’re productive, the government can only get in your way. More taxes, more regulations, more finger pointing. Any good capitalist, especially a Nomad Capitalist, is for limited government. If you’re an American who says “our government isn’t great, but theirs is worse” get ready to be amazed.

The United States places 128th overall when it comes to measuring limited government. Sure, Somalia is ahead of it and I don’t think anyone wants to live there. But Taiwan is miles ahead at 9th place. Hong Kong is a manageable 15th, with Singapore and Macau not far behind. Panama, Australia, even China are well ahead.

Quality of Life. It’s important to be happy in life. Where we live is a part of this happiness. I realize that no study or impersonal metric can define where we will be most happy, although a book called “The Geography of Bliss” tried just that. The US wasn’t on the list. In a more official study, the Human Development Index monitors quality of life, and found Norway has the highest level of human development. Australia was second, ahead of the United States and the Netherlands.

If things in your country aren’t perfect, you can take advantage of improved conditions elsewhere. Don’t commit yourself to just one place. Pick and choose the places that treat you best in each area of your life and your business and reap the benefits.

Having seen the world and the things countries do right and do wrong, I’ve realized through my own eyes that internationalization is the best defense against jurisdictional weaknesses.

I don’t want to settle for a banking sector that’s considered safe only because the average person living there doesn’t know any better. I want the best.

I want the maximum amount of freedom, the best opportunities, and the highest chance for success in everything I do. That’s where the Five Flags theory comes in. It’s what this site is all about.

If you liked this article and are curious how to apply the Nomad Capitalist lifestyle for yourself, check out the quick video below. Then, if you'd like some help doing it, click here to let me know.

Andrew has been internationalizing since 2008, and has learned what works and what doesn't work when it comes to reducing taxes, increasing personal freedom, and creating wealth. Click here to work with him personally.